<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


(Mark One)
     X           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
----------              OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended March 31, 2000

                                       or

                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
-----------              OF THE SECURITIES EXCHANGE ACT OF 1934


               For the transition period from ________ to ________


                         Commission File Number 0-12950


                          ALLIANCE PHARMACEUTICAL CORP.
             (Exact name of Registrant as specified in its charter)


New York                                                   14-1644018
---------------------------------              ---------------------------------
(State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                    Identification Number)

3040 Science Park Road
San Diego, California                                      92121
---------------------------------              ---------------------------------
(Address of principal executive offices)                  Zip Code

Registrant's telephone number,
including area code:                                      858/410-5200
                                               ---------------------------------

Indicate by a check whether the registrant (1) has filed all reports required to
be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.

                         Yes    X       No
                              -----        -----

As of May 10, 2000, Registrant had 47,182,954 shares of its Common Stock, $.01
par value, outstanding.


<PAGE>


ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES



INDEX
-----

<TABLE>
<CAPTION>

                                                                                                      Page No.
                                                                                                      --------
<S>                                                                                                   <C>
PART I - FINANCIAL INFORMATION


Item 1. Financial Statements


     Condensed Consolidated Balance Sheets                                                                3


     Condensed Consolidated Statements of Operations                                                      4


     Condensed Consolidated Statements of Cash Flows                                                      5


     Notes to Condensed Consolidated Financial Statements                                                 6


Item 2. Management's Discussion and Analysis of
 Financial Condition and Results of Operations                                                            8


PART II - OTHER INFORMATION


Item 1. Legal Proceedings                                                                                14

Item 2. Changes in Securities and Use of Proceeds                                                        14


Item 6. Exhibits and Reports on Form 8-K                                                                 14

</TABLE>


                                       2
<PAGE>


PART I  FINANCIAL INFORMATION:
ITEM 1.  FINANCIAL STATEMENTS

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                      MARCH 31,                  JUNE 30,
                                                                                        2000                       1999
                                                                                ----------------------     ----------------------
<S>                                                                             <C>                        <C>
     ASSETS                                                                          (UNAUDITED)                  (NOTE)

     CURRENT ASSETS:
         Cash and cash equivalents                                              $          13,159,000      $          19,081,000
         Short-term investments                                                            15,669,000                          -
         Research revenue receivable                                                                -                  4,875,000
         Other current assets                                                                 202,000                    413,000
                                                                                ----------------------     ----------------------
                   Total current assets                                                    29,030,000                 24,369,000

     PROPERTY, PLANT AND EQUIPMENT - NET                                                   21,194,000                 24,621,000
     PURCHASED TECHNOLOGY - NET                                                            10,355,000                 11,361,000
     RESTRICTED CASH                                                                        5,204,000                  5,000,000
     OTHER ASSETS - NET                                                                       613,000                    633,000
                                                                                ----------------------     ----------------------
                                                                                $          66,396,000      $          65,984,000
                                                                                ======================     ======================

     LIABILITIES AND STOCKHOLDERS' EQUITY

     CURRENT LIABILITIES:
         Accounts payable                                                       $           5,389,000      $           4,910,000
         Accrued expenses                                                                   3,907,000                  4,280,000
         Current portion of long-term debt                                                  4,170,000                  4,170,000
                                                                                ----------------------     ----------------------
                   Total current liabilities                                               13,466,000                 13,360,000

     LONG-TERM DEBT                                                                        20,117,000                 10,499,000

     STOCKHOLDERS' EQUITY:
         Preferred stock - $.01 par value; 5,000,000 shares authorized; 0 and
              500,000 shares of Series D issued and outstanding at
               March 31, 2000 and June 30, 1999, respectively                                       -                      5,000
         Common stock - $.01 par value; 75,000,000 shares authorized; 47,124,816
              and 43,510,049 shares issued and outstanding at
              March 31, 2000 and June 30, 1999, respectively                                  471,000                    435,000
         Additional paid-in capital                                                       393,962,000                368,409,000
         Accumulated deficit                                                             (361,620,000)              (326,724,000)
                                                                                ----------------------     ----------------------
                   Total stockholders' equity                                              32,813,000                 42,125,000
                                                                                ----------------------     ----------------------
                                                                                $          66,396,000      $          65,984,000
                                                                                ======================     ======================

</TABLE>

     Note:    The balance sheet at June 30, 1999 has been derived from the
              audited financial statements at that date but does not include all
              of the information and footnotes required by generally accepted
              accounting principles for complete financial statements.

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>


   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                           MARCH 31,                                 MARCH 31,
                                                    2000                1999                  2000                 1999
                                             ------------------  ------------------    ------------------   ------------------
                                                          (UNAUDITED)                               (UNAUDITED)
<S>                                          <C>                 <C>                   <C>                  <C>
   REVENUES:
      License and research revenue           $           9,000   $      1,021,000      $      15,781,000    $    7,169,000

   OPERATING EXPENSES:
      Research and development                      14,158,000         14,771,000             39,222,000        44,735,000
      General and administrative                     2,759,000          2,101,000              7,105,000         6,276,000
                                             ------------------  ------------------    ------------------   ------------------

                                                    16,917,000         16,872,000             46,327,000        51,011,000
                                             ------------------  ------------------    ------------------   ------------------
   LOSS FROM OPERATIONS                            (16,908,000)       (15,851,000)           (30,546,000)      (43,842,000)

   IMPUTED INTEREST EXPENSE
      ON CONVERTIBLE DEBENTURES                     (3,653,000)                 -             (3,653,000)                -
   INVESTMENT INCOME                                   280,000            474,000                802,000         1,641,000
   INTEREST EXPENSE                                   (806,000)          (298,000)            (1,499,000)         (736,000)
                                             ------------------  ------------------    ------------------   ------------------
   NET LOSS                                        (21,087,000)       (15,675,000)           (34,896,000)      (42,937,000)

   IMPUTED DIVIDEND ON
      SERIES E-1 PREFERRED STOCK                             -                  -                      -          (483,000)
                                             ------------------  ------------------    ------------------   ------------------
   NET LOSS APPLICABLE TO COMMON SHARES      $     (21,087,000)  $    (15,675,000)     $     (34,896,000)   $  (43,420,000)
                                             ==================  ==================    ==================   ==================

   NET LOSS PER COMMON SHARE:
      BASIC AND DILUTED                      $           (0.46)  $          (0.48)     $           (0.78)   $        (1.35)
                                             ==================  ==================    ==================   ==================

   WEIGHTED AVERAGE SHARES OUTSTANDING:
      BASIC AND DILUTED                             45,924,000         32,550,000             44,543,000         32,202,000
                                             ==================  ==================    ==================   ==================

</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>


     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                           NINE MONTHS ENDED
                                                                                               MARCH 31,
                                                                                    2000                          1999
                                                                           ----------------------        ---------------------
                                                                                               (UNAUDITED)
<S>                                                                        <C>                           <C>
     OPERATING ACTIVITIES:
        Net loss                                                           $         (34,896,000)        $        (42,937,000)
        Adjustments to reconcile net loss to net cash used in operations:
           Depreciation and amortization                                               4,747,000                    4,495,000
           Imputed interest expense on convertible debentures                          3,653,000                            -
           Expense associated with warrant issuance                                    1,333,000                            -
           Receipt of equity securities in exchange for technology                    (4,800,000)                           -
           Issuance of common stock in exchange for technology                         5,000,000                            -
           Non-cash compensation - net                                                   645,000                            -
           Changes in operating assets and liabilities:
              Research revenue receivable                                              4,875,000                    2,972,000
              Restricted and other assets                                                 27,000                      (17,000)
              Accounts payable and accrued expenses and other                            106,000                   (1,237,000)
                                                                           ----------------------        ---------------------
     Net cash used in operating activities                                           (19,310,000)                 (36,724,000)
                                                                           ----------------------        ---------------------

     INVESTING ACTIVITIES:
        Purchases of short-term investments                                                    -                  (23,711,000)
        Sales and maturities of short-term investments                                         -                   58,747,000
        Property, plant and equipment - net                                             (314,000)                  (4,085,000)
                                                                           ----------------------        ---------------------
     Net cash provided by (used in) investing activities                                (314,000)                  30,951,000
                                                                           ----------------------        ---------------------

     FINANCING ACTIVITIES:
        Issuance of common stock                                                       2,376,000                        1,000
        Issuance of convertible preferred stock                                                -                    5,582,000
        Proceeds from long-term debt                                                  15,000,000                    5,050,000
        Principal payments on long-term debt                                          (3,674,000)                    (880,000)
                                                                           ----------------------        ---------------------
     Net cash provided by financing activities                                        13,702,000                    9,753,000
                                                                           ----------------------        ---------------------

     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 (5,922,000)                   3,980,000
     CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                 19,081,000                   11,809,000
                                                                           ----------------------        ---------------------
     CASH AND CASH EQUIVALENTS AT END OF PERIOD                            $          13,159,000         $         15,789,000
                                                                           ======================        =====================

     SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
       AND FINANCING ACTIVITIES:
     Deferred interest expense on long-term debt                           $              92,000         $                  -
     Issuance of common stock upon conversion of notes                                 1,800,000                            -

</TABLE>


     SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>


ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company" or "Alliance") are engaged in identifying, designing, and developing
novel medical products.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., the accounts of its wholly owned subsidiary Astral, Inc.,
its wholly owned subsidiary MDV Technologies, Inc. ("MDV") from the acquisition
in November 1996, its wholly owned subsidiary Alliance Pharmaceutical GmbH from
its inception in December 1998, and its majority-owned subsidiary Talco
Pharmaceutical, Inc. All significant intercompany accounts and transactions have
been eliminated. Certain amounts in fiscal 1999 have been reclassified to
conform to the current year's presentation.

INTERIM CONDENSED FINANCIAL STATEMENTS

         The condensed consolidated balance sheet as of March 31, 2000, the
condensed consolidated statements of operations for the three and nine months
ended March 31, 2000 and 1999, and the condensed consolidated statements of cash
flows for the nine months ended March 31, 2000 and 1999 are unaudited. In the
opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year. The
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1999.

PURCHASED TECHNOLOGY

         The purchased technology was primarily acquired as a result of the
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in
fiscal 1989. The technology acquired is the Company's core perfluorochemical
("PFC") technology and was valued based on an analysis of the present value
of future earnings anticipated from this technology at that time. The Company
identified alternative future uses for the PFC technology, including the
OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered Trademark-
(intrapulmonary oxygen carrier) products.

         The PFC technology is the basis for the Company's main drug development
programs and is being amortized over a 20-year life. The PFC technology has a
book value of $10.4 million and $11.2 million, net of accumulated amortization
of $12.9 million and $12 million at March 31, 2000 and June 30, 1999,
respectively.


                                       6
<PAGE>


         The carrying value of purchased technology is reviewed periodically
based on the projected cash flows to be received from license fees, milestone
payments, royalties and other product revenues. If such cash flows are less than
the carrying value of the purchased technology, the difference will be charged
to expense.

COMPREHENSIVE INCOME AND LOSS

         Effective July 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement No. 130, "Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS No. 130
had no impact on the Company's net loss or stockholders' equity. SFAS No. 130
requires unrealized gains and losses on the Company's available-for-sale
securities to be included in comprehensive income. During the three months ended
March 31, 2000 and 1999, the total comprehensive loss, which includes the
unrealized gain or loss on available-for-sale securities, was $13,207,000 and
$15,673,000, respectively. During the nine months ended March 31, 2000 and 1999,
the total comprehensive loss, which includes the unrealized gain or loss on
available-for-sale securities, was $24,027,000 and $42,959,000, respectively.

NET INCOME (LOSS) PER SHARE

         The Company computes net loss per common share in accordance with
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 requires the presentation of basic and diluted earnings per share
amounts. Basic earnings per share is calculated based upon the weighted average
number of common shares outstanding during the period while diluted earnings per
share also gives effect to all potential dilutive common shares outstanding
during the period such as common shares underlying options, warrants, and
convertible securities, and contingently issuable shares. All potential dilutive
common shares have been excluded from the calculation of diluted earnings per
share as their inclusion would be anti-dilutive.

2.   SALE OF TECHNOLOGY

         In November 1999, the Company completed the sale of certain aspects of
its PULMOSPHERES(R) technology to Inhale Therapeutic Systems, Inc. ("Inhale")
for $15 million in cash and $5 million in common stock of Inhale, plus
additional future milestone and royalty payments. In consideration for retaining
certain rights to use the technology, Alliance issued $5 million in Alliance
common stock to Inhale.

3.   SUBSEQUENT EVENT

    On May 12, 2000, the Company and Baxter Healthcare Corporation ("Baxter")
announced that they have reached an agreement for the manufacturing, sales
and distribution of Alliance's OXYGENT (perflubron emulsion) in the United
States, Canada and Europe. OXYGENT is a chemical-based oxygen carrier being
developed to enhance the delivery of oxygen to tissues and vital organs.

    Under the agreement, Baxter will purchase $20 million of convertible
preferred stock of Alliance later in May 2000. In order for Baxter to
maintain its rights to commercialize the product, Baxter is required to
invest an additional $30 million of convertible redeemable preferred stock
over the next 18 months as clinical trials progress. Once the product is
launched, Alliance will also receive royalty income and on ongoing share in
the profits generated by sales of the product.

    The investment will help support Alliance in the completion of late-stage
clinical trials and achievement of regulatory approvals. Baxter will obtain
an exclusive license for the manufacture, sales and distribution of OXYGENT
in the United States, Canada, and Europe, and will have the rights to
co-develop OXYGENT for further indications.

                                       7
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (References to years are to the Company's fiscal years ended June
30.)

         Since commencing operations in 1983, the Company has applied
substantially all of its resources to research and development programs and to
clinical trials. The Company has incurred losses since inception and, as of
March 31, 2000, had an accumulated deficit of $361.6 million. The Company
expects to incur significant losses over at least the next few years as the
Company continues its research and product development efforts and attempt to
commercialize our products.

         Through March 2000, the Company's revenues have come primarily from
collaborations with corporate partners, including research and development
and milestone payments. The Company's expenses have consisted primarily of
research and development costs and administrative costs. To date, the
Company's revenues from the sale of products have not been significant. The
Company believes its future operating results may be subject to quarterly
fluctuations due to a variety of factors, including the timing of future
collaborations and the achievement of milestones under collaborative
agreements, whether and when new products are successfully developed and
introduced by the Company or its competitors, and market acceptance of
products under development.

LIQUIDITY AND CAPITAL RESOURCES

         Through March 2000, the Company financed its activities primarily from
public and private sales of equity, debt financing and funding from
collaborations with corporate partners.

    On May 12, 2000, the Company and Baxter announced that they have reached
an agreement for the manufacturing, sales and distribution of Alliance's
OXYGENT in the United States, Canada and Europe. Under the agreement, Baxter
will purchase $20 million of convertible preferred stock of Alliance later in
May 2000. In order for Baxter to maintain its rights to commercialize the
product, Baxter is required to invest an additional $30 million of
convertible redeemable preferred stock over the next 18 months as clinical
trials progress. Once the product is launched, Alliance will also receive
royalty income and an ongoing share in the profits generated by sales of the
product.

                                       8
<PAGE>


         In February 2000, the Company sold $15 million in principal amount of
four-year 5% subordinated convertible debentures to certain investors. The
debentures are convertible at any time at each investor's option into shares of
Alliance common stock at $9.65 per share, subject to certain antidilution
provisions. The conversion price of the debentures was below the trading market
price on the day the debentures were issued. As a result of this conversion
price, the Company has recorded an immediate charge to interest expense of $3.7
million on these convertible debentures related to the beneficial conversion
feature. The Company will have certain rights to cause the debentures to convert
into common stock. The investors will have the option at any time to purchase,
and the Company will have certain rights to require the investors to purchase,
an additional $15 million of four-year 5% subordinated convertible debentures,
convertible into Alliance common stock at $12.06 per share. The Company issued
to certain investors of the debentures a warrant to purchase up to 77,720 shares
of common stock at an exercise price of $9.65 per share. The Company has
recorded deferred interest expense on the warrant, based upon a Black-Scholes
valuation, of $503,000, which will be amortized over the life of the warrant.

         In November 1999, the Company sold certain aspects of its PULMOSPHERES
technology to Inhale for $15 million in cash and $5 million in common stock
(180,099 shares) of Inhale, plus the right to receive additional future
milestone and royalty payments. In consideration for retaining certain rights to
use the technology, Alliance issued $5 million in Alliance common stock to
Inhale. As of March 31, 2000, the value of the common stock received from Inhale
was recorded as $15 million after an adjustment to reflect the market value.

         In May 1999, the Company issued $1.8 million in principal amount of 6%
subordinated convertible notes. On February 8, 2000, the Company caused the
notes to be converted into 900,000 shares of common stock of the Company.

         Under Alliance's license agreement (the "Schering License
Agreement") with Schering AG, Germany ("Schering") for IMAGENT-Registered
Trademark-, Schering has agreed to pay milestone payments and royalties on
product sales. Schering is also providing funding to Alliance for some of its
development expenses related to IMAGENT. On February 2, 2000, 500,000 shares
of the Company's convertible Series D Preferred Stock issued in connection
with the Schering License Agreement were converted into 1,000,000 shares of
common stock of the Company.

         In June 1997, the Company sold $2.5 million in clinical trial supplies
to Hoescht Marion Roussel, Inc. ("HMRI") and recorded it as deferred revenue. In
September 1999, HMRI agreed


                                       9
<PAGE>


to sell and Alliance agreed to purchase the clinical trial supplies for up to $3
million over time and under certain circumstances.

         In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million. In June 1998, the
Company restructured the loan to provide for up to $15 million. Amounts borrowed
are secured by a $5 million restricted certificate of deposit, by certain fixed
assets and patents, and are to be repaid over four years. If certain financial
covenants are not satisfied, the outstanding balance may become due and payable.
On March 31, 2000, the balance outstanding on this loan was approximately $9.9
million.

         The Company had net working capital of $15.6 million at March 31, 2000,
compared to $11 million at June 30, 1999. The Company's cash, cash equivalents,
and short-term investments increased to $28.8 million at March 31, 2000, from
$19.1 million at June 30, 1999. The increase resulted primarily from the
proceeds of $15 million from the sale of convertible debentures, the equity
securities received from the sale of technology to Inhale, and the proceeds of
$2.4 million from the issuance of common stock upon the exercise of options and
warrants, partially offset by the net cash used in operations of $19.3 million
and principal payments on long-term debt of $3.7 million. The Company's
operations to date have consumed substantial amounts of cash and are expected to
continue to do so for the foreseeable future.

         The Company continually reviews its product development activities in
an effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential. Factors considered by the
Company in determining the products to pursue include projected markets and
need, potential for regulatory approval and reimbursement under the existing
healthcare system, status of its proprietary rights, technical feasibility,
expected and known product attributes, and estimated costs to bring the product
to market. Based on these and other factors, the Company may from time to time
reallocate its resources among its product development activities. Additions to
products under development or changes in products being pursued can
substantially and rapidly change the Company's funding requirements.

         The Company expects to incur substantial additional expenditures
associated with product development, particularly for LIQUIVENT and OXYGENT as
they continue through pivotal clinical trials. The Company is seeking additional
collaborative research and development relationships with suitable corporate
partners for its non-licensed products. There can be no assurance that such
relationships, if any, will successfully reduce the Company's funding
requirements. Additional equity or debt financing may be required, and there can
be no assurance that such financing will be available on reasonable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
scale back, or eliminate one or more of its product development programs, or
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, or products that the Company would not otherwise relinquish.

         Alliance anticipates that its current capital resources, expected
equity investments by Baxter and expected revenue from investments will be
adequate to satisfy its capital requirements through at least fiscal 2001. The
Company's future capital requirements will depend on many factors, including,
but not limited to, continued scientific progress in its research and
development


                                       10
<PAGE>


programs, progress with preclinical testing and clinical trials, the time and
cost involved in obtaining regulatory approvals, patent costs, competing
technological and market developments, changes in existing collaborative
relationships, the ability of the Company to establish additional collaborative
relationships, and the cost of manufacturing scale-up.

         While the Company believes that it can produce materials for clinical
trials and the initial market launch for OXYGENT and IMAGENT at its existing San
Diego facilities and for LIQUIVENT at its Otisville, New York facility, it may
need to expand its commercial manufacturing capabilities for its products in the
future. Any expansion for any of its products may occur in stages, each of which
would require regulatory approval, and product demand could at times exceed
supply capacity. The Company has not selected a site for such expanded
facilities and cannot predict the amount it will expend for the construction of
such facilities. There can be no assurance as to when or whether the U.S. Food
and Drug Administration ("FDA") will determine that such facilities comply with
Good Manufacturing Practices. The projected location and construction of such
facilities will depend on regulatory approvals, product development, and capital
resources, among other factors. The Company has not obtained any regulatory
approvals for its production facilities for these products, nor can there be any
assurance that it will be able to do so. The Schering License Agreement requires
the Company to manufacture products at its San Diego facility for a period of
time after market launch at a negotiated price. Schering will be responsible for
establishing production capacity beyond the maximum capacity of the San Diego
facility.

YEAR 2000

         Many computer systems and software products created prior to January 1,
2000 were coded to accept only two-digit entries in the date code field.
Beginning in the year 2000, it became necessary for these date code fields to
accept four-digit entries to distinguish the 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies needed to be upgraded to comply with such "Year 2000" requirements.
Management has a continuing Year 2000 program. Although the Company had no
material problems in the rollover from December 31, 1999 to January 1, 2000, the
program will continue to monitor internal systems for future dates in 2000 which
could cause system failures. As of December 31, 1999, the Company had determined
that all critical and most non-critical internal systems, software and embedded
chips were compliant or had replaced those that were not compliant. The Company
received compliance confirmations from over 75% of its critical third-party
suppliers, contractors and vendors (collectively, "contractors") with respect to
their computers, software and systems, and it believes that none of its
contractors had material problems in the rollover from December 31, 1999 to
January 1, 2000; however, no assurances can be given that the Company's internal
systems or contractors' systems will not have operational problems in the future
or be compliant. The Company's costs for its Year 2000 program to date have not
been material and are expected to total less than $400,000. The Company believes
such costs will not have a material effect on the Company's consolidated
financial position or results of operations. There can be no assurance, however,
that the Company's computer systems and applications of other companies on which
the Company's operations rely, will not fail in the future and will not have a
material adverse effect on the Company systems. Moreover, a failure of (i) the
Company's scientific, manufacturing and other equipment to operate at all or
operate accurately, (ii) clinical trial site medical equipment to perform
properly, (iii) necessary materials or


                                       11
<PAGE>


supplies to be available to the Company when needed, or (iv) other equipment,
software or systems to perform properly, as a result of Year 2000 problems,
could have a material adverse effect on the Company's business or financial
condition.

         Except for historical information, the statements made herein and
elsewhere are forward-looking. The Company wishes to caution readers that these
statements are only predictions and that the Company's business is subject to
significant risks. The factors discussed herein and other important factors, in
some cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results for 2000, and
beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These risks include, but are
not limited to, the inability to obtain adequate financing for the Company's
development efforts; the inability to enter into collaborative relationships to
further develop and commercialize the Company's products; changes in any such
relationships, or the inability of any collaborative partner to adequately
commercialize any of the Company's products; the uncertainties associated with
the lengthy regulatory approval process; the uncertainties associated with
obtaining and enforcing patents important to the Company's business; possible
competition from other products; and Year 2000 issues. Furthermore, even if the
Company's products appear promising at an early stage of development, they may
not reach the market for a number of important reasons. Such reasons include,
but are not limited to, the possibilities that the potential products will be
found ineffective during clinical trials; failure to receive necessary
regulatory approvals; difficulties in manufacturing on a large scale; failure to
obtain market acceptance; and the inability to commercialize because of
proprietary rights of third parties. The research, development, and market
introduction of new products will require the application of considerable
technical and financial resources, while revenues generated from such products,
assuming they are developed successfully, may not be realized for several years.
Other material and unpredictable factors which could affect operating results
include, without limitation, the uncertainty of the timing of product approvals
and introductions and of sales growth; the ability to obtain necessary raw
materials at cost-effective prices or at all; the effect of possible technology
and/or other business acquisitions or transactions; and the increasing emphasis
on controlling healthcare costs and potential legislation or regulation of
healthcare pricing.

RESULTS OF OPERATIONS

         NINE MONTHS ENDED MARCH 31, 2000 AS COMPARED WITH NINE MONTHS ENDED
MARCH 31, 1999

         The Company's license and research revenue increased by $8.6 million to
$15.8 million for the nine months ended March 31, 2000, compared to $7.2 million
for the nine months ended March 31, 1999. The increase is primarily a result of
the proceeds from the sale of technology to Inhale. The Company expects research
revenue for fiscal 2000 to increase when compared to fiscal 1999, due to the
revenue from the Inhale transaction.

         Research and development expenses decreased by 12% to $39.2 million for
the nine months ended March 31, 2000, compared to $44.7 million for the nine
months ended March 31, 1999. The decrease in expenses was primarily due to a $3
million decrease in payments to outside researchers for clinical trials and
other product development work, a $1.9 million decrease in


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<PAGE>


staffing costs for employees primarily engaged in research and development
activities, as well as other decreases related to the Company's research and
development activities.

         General and administrative expenses were $7.1 million for the nine
months ended March 31, 2000, compared to $6.3 million for the nine months ended
March 31, 1999. The increase in general and administrative expenses was
primarily due to increased professional fees resulting from partnering and
financing activities.

         Investment income was $802,000 for the nine months ended March 31,
2000, compared to $1.6 million for the nine months ended March 31, 1999. The
decrease was primarily a result of lower average cash and short-term investment
activities.

         Interest expense was $1.5 million for the nine months ended March 31,
2000, compared to $736,000 for the nine months ended March 31, 1999. The
increase was primarily due to non-cash interest expense charges related to
warrants issued.

         In February 2000, the Company recorded interest expense of $3.7 million
related to the beneficial conversion feature on the $15 million subordinated
convertible debentures.

         THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1999

         The Company's license and research revenue decreased by $1 million to
$9,000 for the three months ended March 31, 2000, compared to $1 million for the
three months ended March 31, 1999. The decrease is primarily a result of the
decreased research revenue from Schering under the Schering License Agreement.

         Research and development expenses decreased by 4% to $14.2 million for
the three months ended March 31, 2000, compared to $14.8 million for the three
months ended March 31, 1999. The decrease in expenses was primarily due to a
$300,000 decrease in staffing costs for employees primarily engaged in research
and development activities, a $178,000 decrease in supplies and chemical costs,
as well as other decreases related to the company's research and development
activities.

         General and administrative expenses were $2.8 million for the three
months ended March 31, 2000, compared to $2.1 million for the three months ended
March 31, 1999. The increase in general and administrative expenses was
primarily due to increased professional fees resulting from partnering and
financing activities.

         Investment income and other was $280,000 for the three months ended
March 31, 2000, compared to $474,000 for the three months ended March 31, 1999.
The decrease was primarily a result of lower average cash and short-term
investment balances.

         Interest expense was $806,000 for the three months ended March 31,
2000, compared to $298,000 for the three months ended March 31, 1999. The
increase was primarily due to non-cash interest expense charges related to
warrants issued.


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<PAGE>


         In February 2000, the Company recorded interest expense of $3.7 million
related to the beneficial conversion feature on the $15 million subordinated
convertible debentures.

         Alliance expects to continue to incur substantial and increasing
expenses associated with its research and development programs. Operating losses
may fluctuate from quarter to quarter as a result of differences in the timing
of revenues earned and expenses incurred and such fluctuations may be
substantial. The Company's historical results are not necessarily indicative of
future results.

PART II  OTHER INFORMATION:

ITEM 1.  LEGAL PROCEEDINGS

         In the quarterly report on Form 10-Q for the period ended September 30,
1999, the Company announced that HMRI dismissed arbitration proceedings filed
against the Company in September 1998 in connection with its termination of the
license agreement with HMRI and agreed to sell certain raw materials to
Alliance.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On February 11, 2000, the Company issued to Maatschap Petrus a warrant
for 77,720 shares exercisable at $9.65 per share at any time before February 11,
2004. The warrant was issued in connection with financial advisory services
provided to the Company. The transaction was exempt from registration with the
SEC under Section 4(2) of the Act.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      There were no exhibits.

(b)      Reports on Form 8-K

         The Company filed a current report on Form 8-K dated February 22, 2000
         stating that it sold $15 million principal amount four-year
         subordinated convertible debentures. The investors have the option to
         purchase an additional $15 million of similar debentures and Alliance
         has certain rights to require the investors to purchase the additional
         debentures.


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SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                               ALLIANCE PHARMACEUTICAL CORP.
                                                       (Registrant)

                                                      \s\ Tim T. Hart
                                                  -----------------------
                                                       Tim T. Hart
                                                  Chief Financial Officer
                                                       and Treasurer
Date:  May 12, 2000





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